Masshousing Guidelines: Piggy-Backed Mortgages (12/21/2005)

MHFA ANNOUNCEMENT

This Announcement contains important information on MHFA policies or programs and should be carefully reviewed by holders of the Program Manual.

MASSHOUSING GUIDELINES: PIGGY-BACKED MORTGAGES MassHousing will purchase first mortgages that are subject to subordinate financing held by another investor as long as the subordinate lien is recorded and clearly subordinate to our mortgage lien. The maximum combined loan to value is not to exceed 95%. Single Family and condominiums only. No homebuyer counseling required. The repayment terms for the subordinate financing must provide for regular fixed payments of principal and interest and permit prepayment at any time without penalty. Adjustable Rate Mortgages are not permitted. The terms of the subordinate financing should require interest at a market rate. A market rate is one that is no more than 2% above the note rate on the first mortgage. We will not purchase mortgages that are subject to a subordinate mortgage that has wrap-around terms that combine the indebtedness of the first mortgage with that of the subordinate mortgage. A lender must disclose subordinate financing repayment terms to us, the appraiser, and the mortgage insurer. When the subordinate financing is obtained from the borrower's employer, the financing may be either an unsecured loan or a mortgage, and does not have to require regular payments of either principal and interest or interest only. Instead, the financing may be structured in any of the following ways: fully amortizing level monthly payments; deferred payments for some period before changing to fully amortizing level payments; deferred payments over the entire term; or forgiveness of the debt over time. The financing terms may provide for the employer to require full repayment of the debt should an employee terminate his or her employment (for reasons other than those related to disability) before the maturity date of the subordinate financing. MassHousing will charge a loan-level price adjustment or .25 of 1% on mortgages that are subject to subordinate financing. Since Community Seconds transactions are generally structured as "soft seconds" and are targeted to community lending borrowers, this section does not apply for any mortgage that is part of a Community Seconds transaction. The loans are to be underwritten through the portal using the CLTV. This step will require changes to the portal that are currently being developed. Should this policy be adopted prior to the portal changes, there are minor operational issues that must be addressed by both MIF and the HO purchasing area.

PLEASE DISTRIBUTE THIS NOTICE TO ALL STAFF INVOLVED IN MHFA ORIGINATIONS, UNDERWRITING AND PROCESSING.

MHFA ANNOUNCEMENT 2005.05 December 21, 2005